Markets Today: Black Friday

In the 1975 Steely Dan classic, the song Black Friday refers to a 24 September 1869 ploy by a group of wealthy US investors to corner the gold market and drive the price higher, but who were subsequently foiled when the government got wind and released $4 million worth of gold onto the market.

In the 1975 Steely Dan classic, the song Black Friday refers to a 24 September 1869 ploy by a group of wealthy US investors to corner the gold market and drive the price higher, but who were subsequently foiled when the government got wind and released $4 million worth of gold onto the market, driving the price sharply lower and which left many of the investors broke.

Incidentally, there’s a prize for the first client to let us know which Australian town is referred to in the song.

This is a fairly lame segue into the news, courtesy of the Financial Times, that China’s ‘national team’ owns at least 6 percent of the mainland stock market as a result of the massive state-sponsored support earlier this year to prop up share prices following the summer equity market crash. China’s Securities Finance Corp (CSF), the state-owned margin lender, saw the value of its holdings rise from RMB692mn at the end of June to RMB616bn three months later. That’s an increase of just under $100bn. The Shanghai Composite index is some 28% up from its August lows.

There’s an obvious message here: don’t mess with China, and which remains instructive as we contemplate whether or not market forces will be allowed to play a much bigger role in determining the value of the renminbi in coming quarters – and which in turn has significant implications for EM currencies in general and with that the AUD.

Nowadays of course Black Friday typically refers to the day after Thanksgiving and the crucial 4-day shopping period that will determine the financial fortunes of so many US retailers. ‘Black Friday’ actually begins on Thursday evening when many shops open (i.e. now). In 2014, $50.9bn was spent during this period, so about $190 per man woman and child and on Monday or very soon thereafter, the National Retail Federation will announce how this year compared to last.

This waffle is clearly designed to fill a column amid a complete dearth of market moving news since we went home yesterday. In currencies, the AUD has largely maintained the losses recorded in the immediate aftermath of yesterday’s much bigger than expected fall in Q3 capital expenditure. It sits one from bottom in the G10 FX leader board near 0.7230. Iron ore is of just 9 cents overnight, to $43.98, though exchange-traded metals are mostly higher.

The British pound has also given back most of Wednesday’s gained that followed the delivery of the chancellor’s Autumn Statement. NOK sits at the bottom (but in contrast the CAD near the top) with oil prices back lower, not helped by comments from Russia’s energy minister that Russia sees no need to collaborate with the Saudi government over oil supplies to Europe. OPEC meets next Friday. Earlier, European stocks had a good day (Eurostoxx 50 +1.06%) while Eurozone bond yields were little changed.

Coming Up

Lacking impetus from offshore markets and as our North American cousins continue to make inroads into the 46 million turkeys they typically consume each Thanksgiving, it promises to be a slow Asia-Pacific Friday.

There’s nothing to see on either the Australian or New Zealand calendars today, but some data interest in China, courtesy of October industrial profits, and in Japan latest CPI, unemployment and household spending data.

Chinese industrial profits recovered to be about flat in annual terms in September from around -9% on August. The data are of some relevance in thinking about future steps in China’s currency policy, in which respect on Monday night we should learn that the IMF Board has formally voted to include the RMB in the Special Drawing Rights (SDR) basket, starting next October. Such a decision symbolically confers reserve status on the renminbi, even if it means little in practice – in the short term – in terms of reserve managers’ enthusiasm for adding more CNY to their reserves.

Of the Japan data, CPI will inevitably attract most of the publicity. Headline CPI is expected to lift back to 0.2% following the September fall to 0.0% from 0.2%. The BoJ is currently playing up the ex-fresh food and energy core series, which is expected to drop to 0.8% from 0.9%. We’ll need significantly weaker outcomes than this to alter expectations for no changed in BoJ policy at the 19 December meeting.

Overnight

On global stock markets, the S&P 500 was closed for US Thanksgiving, as were US bond markets. Eurozone benchmark bond yields were flat. On commodity markets, Brent crude oil -1.54% to $45.46, gold+0.1% to $1,071, iron ore -0.2% to $43.98. AUD is at 0.7231 and the range was 0.7211 to 0.7263.

About the Author

Ray Attrill is Head of FX Strategy within the Fixed income, Currencies and Commodities division of National Australia Bank.

In this role, he advises the bank’s dealing rooms and institutional and corporate clients on developments in global foreign exchange markets.

Ray has 30 years experience as an economist and market strategist, obtained in roles working in London, Sydney and New York. Prior to joining NAB in 2012, he held a similar role at BNP Paribas, based in New York.

He previously amassed considerable experience in research and strategy, being a joint founding partner for 4CAST limited, a leading independent economic and financial market research company. Prior to that, he worked for many years in senior roles at MMS International, also a leading on-line market research provider.

He holds both Master and Bachelor of Science degrees in economics from the London School of Economics.